Dear Mohan,
Thank you very much, on your quote on Dhanus Tech.
Please also Indicate your comments on Supreme Infra.
Thanking you,
OK here are my views on Supreme Infrastructure Ltd.
The company is into road construction ONLY. And the kind of projects they have make me perceive more as a civil works company. This is a highly competitive business. But it is a smart move from the management to go for backward integration and into quarrying, crushing, asphalt and RMC to stay competitive. This helps them in getting government orders and guard margins and keep them healthy. Having said that, there is nothing great about the company. Quarrying activity is highly regulated and risky.
Recently they bagged a Rs 90-crore order for construction of an IT park hotel from SupremeHousing & Hospitality (SHHL), a company set up by promoters. I am not sure if they have the experience to execute real estate projects. They plan to forey into real estate with this project.
Lets see now- a startup co promoted by the same people offers a project to them does not mean they have entered the real estate business. The dynamics of real estate industry are totally different than what they do.
I am not going to build the real estate project into their story. Therefore let us look at the midium term only.
I normally go by the ROCE to value such companies, along with other valuation metrics. The ROCE for this company is decreasing over last 3 years. As far as P/E multiples goes the valuations appear fair if not overvalued compared to likes of PBA Infrastructure and MSK Projects.
The guidance given by the management sounds optimistic. For a small co like this, focused dangourously on a low entry barrier sector and aspiring to enter the real estate business with the help of an order from a same group promoted start up company, things are too early to put your money on. I am also not sure about the corporate governance of the co.
I would suggest you stay away from such seemingly 'gems' and 'multibaggers'. I am not saying that the co would not realize the 18-22 EPS as per the guidance and also command a P/E of 10-12 to reach around 200-240 by year end. They might just do that. But frankly the risks are too high. I normally discount the EPS guidance of such small companies and use a higher risk premium.
There are other much better infrastructure and real estate and small multibaggers out there with a better risk profile and higher margin of safety. I suggest you dont just go by the words "infrastructure" and "real estate".
Hope it helps. If you have further queries feel free to let me know.